Brokers and Brokerage Firms Can No Longer Use The “Inability to Pay” Defense To Avoid Paying Money On An Arbitration Award or Settlement, According to a New SEC Rule.
The Securities and Exchange Commission (“SEC” or “Commission”) has reportedly approved a rule change proposed by the Financial Industry Regulatory Authority, Inc. (“FINRA”) in April that would prevent brokers and brokerage firms who have been ordered to pay money in an arbitration award or settlement agreement, from using the “inability to pay” defense (i.e., that they have no money) from losing their license.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act
of 1934 (“Act”), FINRA filed with the SEC the proposed amendment to FINRA Rule 9554 to eliminate explicitly the inability-to-pay defense in the expedited proceedings context when a member or associated person fails to pay an arbitration award to a customer.
The proposed rule added language that “When a member or associated person fails to comply with an arbitration award or a settlement agreement related to an arbitration or mediation under Article VI, Section 3 of the FINRA By-Laws involving a customer, a claim of inability to pay is no defense.”
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